The IRA has confirmed the three people shot dead by security forces in Gibraltar yesterday were members of an active service unit.

They are reported to have planted a 500lb car bomb near the British Governor's residence. It was primed to go off tomorrow during a changing of the guard ceremony, which is popular with tourists.

The three - two men and a woman - were shot as they walked towards the border with Spain. Security officers say they were acting suspiciously and the officers who carried out the shootings believed their lives were in danger.

The three dead have been named as Daniel McCann, 30 and Sean Savage, 24, both known IRA activists and Mairead Farrell, 31, the most senior member of the gang who had served 10 years for her part in the bombing of a hotel outside Belfast in 1976.

The Ministry of Defence confirmed last night military personnel had opened fire on three terrorist suspects. It said no weapons had been found at the scene.

The shooting happened in mid-afternoon.

One eyewitness said he had seen a man in jeans holding a pistol in both hands. He said the man was only four feet from one of those he killed.

Police sealed off the area for several hours after the shooting. A robot was brought in to defuse the car bomb and troops patrolled the streets. Local residents were warned to stay indoors.

The terrorists' target was the band and guard of the 1st Battalion Royal Anglian Regiment, which arrived in Gibraltar recently after a tour of duty in Northern Ireland.

Army intelligence officers have been expecting an IRA attack on a military target for some months after a series of setbacks for the Provisionals. Reports say 20 members of the IRA have been killed in the past 15 months.

The Independent's Ireland correspondent, David McKittrick, said 1987 was "a bad year" for the IRA. They lost eight active service members in an SAS ambush in Country Antrim.

He has raised speculation yesterday's killings in Gibraltar may also have been the work of the SAS.

In Context
The Shootings on the Rock provoked a huge controversy.

Although initial reports made clear the three terrorists had been shot dead after planting a massive car bomb, within 24 hours, the Foreign Secretary, Geoffrey Howe, was forced to admit there had been no car bomb.

He told MPs the three were unarmed when they had been shot.

A car used by the bombers was found two days after the killings containing 140lb of Semtex with a device timed to go off during the changing of the guard.

An inquest in September concluded the three had been lawfully killed. However, in 1995 the European Court of Justice ruled that the soldiers had violated the fundamental right to life of the IRA members.